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Sterling will remain vulnerable to political risk as the UK undertakes formal Brexit negotiations with EU officials from Monday and the Conservative Party looks to ally with the DUP.

Brexit negotiations are due to start on Monday in Brussels, and talks are set to continue every month throughout the summer.

Alexandra Russell-Oliver, of Caxton FX Analysis, told Daily Star Online: “Sterling will remain vulnerable to political risk as the UK undertakes formal Brexit negotiations with EU officials from Monday and the Conservative Party looks to ally with the DUP.

“The longer uncertainty lasts, the greater the risk for the pound.

“In the medium term, speculation of a softer Brexit could support the pound.”

The hints an interest rate rise immediately affected the exchange rate as the pound kept higher in response.

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Pound to euro: "The longer uncertainty lasts, the greater the risk for the pound"

Laura Parsons, currency analyst at TorFX, said: “After a week of ups and downs the GBP/EUR exchange rate actually managed to end Thursday in a stronger position.

“Dismal UK retail sales figures didn’t do the pound any favours in the morning, with the shocking -1.6 per cent month-on-month slide in May confirming fears that consumer spending will dive in the face of rising inflation and falling wage growth.

“However, the Bank of England (BoE) policy meeting – which was expected to be something of a non-event – gave Sterling a lift in the afternoon.

“In an unexpected twist, members of the Monetary Policy Committee (MPC) were split 5-3 on whether or not to increase interest rates.

“With three policymakers now pushing for an immediate increase to borrowing costs in spite of all the UK’s lingering political and economic uncertainties, the pound was able to recoup earlier losses.”